The Death of the Old Guard Is at Hand!

As you read this, the world’s elite money men and women are cozied up in Jackson Hole, Wyoming. They’re tucked away in hunting lodges, the country version of the Ivory Towers they’re used to inhabiting.

And they think they’re safe …

That they’re in complete control …

That the Old Guard world they’ve created is going to last as far as the eye can see.

Me? I think they need to look out over the battlements. They need to stare into the gloom and shadow and fog. Because if they did, they’d realize that the enemy is at their doorstep. Or in plain English, the death of the Old Guard — the monetary policy regime of the last five years — is at hand!

Sound crazy? I mean, isn’t the Wall Street crowd out there saying the opposite … that this low-volatility, everyone-all-together-rowing-in-the-same-direction, world … will be with us for a long time?

Sure, they are. But when has listening to the Wall Street consensus ever made you money for long?

Jackson Hole, Wyoming — Is this the setting for the death of the monetary policy Old Guard? (photo: Chamber of Commerce)

The fact is, we had five years of monetary policy coordination from 2009 to late-2013. We had five years where every central bank on the planet was printing money in unison, and singing from the same hymnal.

Not anymore! I’ve been highlighting the growing divergence between our economy and Europe’s, for instance. But the shift away from the Old Guard world goes much deeper than that.

As Mohamed El-Erian, formerly of Pimco and now chief economic adviser to Allianz SE, wrote earlier this week:

“After a long period in which the world’s largest central banks were all pushing in the same direction, they’re now reaching the point where their policies will diverge. The Bank of England and the Fed are in the process of taking their foot off the stimulus pedal. The European Central Bank and the Bank of Japan will be going the other way.”

Heck, even within the U.K., policymakers are heading in separate directions. Two policymakers on the Bank of England’s rate-setting committee dissented at the last meeting, the first time that’s happened in more than three years.

They voted to raise U.K. rates by a quarter-point from 0.5 percent at the Aug. 6-7 gathering. Along with slightly more hawkish talk from BOE Governor Mark Carney of late, that sets the stage for hikes later this year or early in 2015.

Here in the U.S., the Fed has already slashed the size of its QE program by more than 70 percent — to just $25 billion from $85 billion late last year. It will likely cut that number to zero at the next couple of policy meetings, something that also sets the stage for actual rate hikes thereafter.

As investors, this creates new risks and new opportunities. One of the best ways to profit from the economic and policy divergences is to position yourself for a decline in Europe’s currency. It has been tanking for a while now because of the death of the Old Guard policy environment, and it just dropped to an 11-month low this week.

That has paid off nicely for my Safe Money Report subscribers. I recommended a specialized ETF that rises in value when the euro falls back in April to them, and they were recently showing open gains of more than 6 percent.

Another way to profit? Focus on strong domestic industries that should benefit from the relative strength we’re seeing here. The surge in energy production, transportation, distribution, refining, and exporting is creating huge winners here in the U.S. Things are so good, the Fed is being forced to react by cutting back on QE and laying the groundwork for rate hikes.

And please, tell me what you think about this important shift — from Old Guard to New. You can do so right at the Money and Marketswebsite here. What investments do you think will shine in this environment, and which will suffer? And how are you positioning yourself to profit? We’d all like to know!

Until next time,

Mike

Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.

{10 comments }

johnFriday, August 22, 2014 at 9:50 am

Mike
I agree there is a shift taking place However I think its a shift that will be in the ownership and sharing of profits by workers. I think that a new order in local democracy will emerge where workers will co own business and share in the gains and each enterprise will be become a family looking after the health,education of its workers and their families
Government will abandon its policy of health/education for all and only the very poor will qualify for State support. The Centre will look after the Nations security ,International relations, Disaster management, Overarching planning, infrastructure, Nation tax collection management,etc
Enterprise will become part of the community and cooperatives rather than individual entrepreneurship will flourish.
The “greed is good” philosophy ,political thinking is dying and the future will be local democracy with the centre less intrusive and supporting the local community.
State dependency will decline as Government debt is out of control and the State is unable to provide the level of social cover required in the future.
“Greedy Capitalism” and “Greedy Communism ” have failed and people will now want to control and have some say in their futures,rather than leaving their future in the hands of incompetent politicians and bureaucrats who have bankrupted the Greedy Capitalism and Greedy Communism systems.
The future will be “Local Cooperativeness “

BillFriday, August 22, 2014 at 10:41 am

well if things are good then why isn’t the job market, or housing, etc. seems to me the economy here is more than a bit fragile?
Who is buying those bonds that the government or the fed. isn’t?

Richard WendtSaturday, August 23, 2014 at 8:18 am

I was reading about how Paul Volcker when he was Fed Chair raised rates to slow down the economy but the flipside was that in raising rates they encouraged massive investment and when Reagan came and lowered taxes it encouraged new businesses. Who today is going to invest in the U.S. with 0% interest rates? But if you jack up rates by several points would that also not encourage investment and purchase of government bonds. I know the Fed needs lower rates to pay for our massive debt but it seems 0% does not encourage bond purchasing. Will we have to wait for the next President to lower corp. Tax rates, and reduce regulation?

H. Craig BradleyFriday, August 22, 2014 at 10:47 am

ORIGINAL “OLD BOY’S” CLUB

I think the FED and fellow (Central) Bankers enjoy the ambiance of Jackson Hole in August (late Summer). While most places in our latitude around the world are still sweltering hot, Jackson, WYO has refreshingly warm during days and is at the same time, very cool at night, primarily due to elevation. Even former V.P. Dick Cheney owns his own cabin (retreat) in nearby Wilson, WYO. Jackson Hole is like Ketchum, Idaho ( Sun Valley) in that they both are high-end seasonal resort communities visited by vacationing celebrities, politicians, and bankers alike.

Bighorn Sheep ( 3/4 curl or better) hunting season begins on the surrounding Bridger-Teton National Forest on Sept. 1 annually. Regular Rifle elk season begins on Sept. 15 and goes into mid-Nov. ( which is basically winter time by then). The (Historic) “Hunting Lodge” you refer to is inside Grand Teton National Park ( Yellowstone National Park, as well) and has not been used by actual hunters for a long, long time. Of course, there has not been any big game hunting inside either National Park since their founding either. Therefore, you could say they are “Dudes Visiting the Ranch” ( Rancho Deluxe ?).

ZWFriday, August 22, 2014 at 1:23 pm

I always have to wonder about a site that goes directly to “Sign Me Up” w/o mentioning the terms.

Dan S.Friday, August 22, 2014 at 4:32 pm

Keynes suggested ways to save capitalism: increase buying demand through fiscal policy. The Fed and the Old Guard is not listening. Ferguson is a result. The poor will get restless and have the time on their hands to cause trouble to the rest of us. Poverty will create upheaval and a loss by the Old Guard. Democracy will create a capitalism where greed is not good with, and does not work for, the majority of voters. The Old Guard will probably live through this next election, but they will fall after they engineer the next recession. In a democracy, states cannot remove voting rights for long before the poor and the disenfranchised rebel. And that will happen probably next year or after the 2016 election if the GOP elects a President. In the very short-run, nothing major will happen until we suffer the next recession. But the mid-term is a very different matter. The current bubbles may not burst until 2015. It took from 2006 to 2008 for the last bubble to burst. History is full of lessons if we are smart enough to heed them.

william wattsSaturday, August 23, 2014 at 11:09 am

The old guard may be changing directions, but they are not going to give up their power. The FED will still run the show. Until the FED is eliminated they will be in charge of the value of the US dollar, setting the interest rates, printing the money ans circulating it. The FED is the tail that wags the dog. Do not forget that the FED is earning the interest on the US debt.

Bill

GeniSaturday, August 23, 2014 at 1:07 pm

DISGUSTED.

Joe MateSaturday, August 23, 2014 at 5:09 pm

Mike: A while ago you mentioned purchasing the EUO ETF to play the european situation. If the Euro were to fall to say 130, what would happen to the EWO. How much of a gain would one incur? I am trying to determine if this makes sense to me. I await your answer.

JerzySunday, August 24, 2014 at 5:25 pm

Last time the World Lords were working hard is to make sure new President B. Obama will inherit economy that will collaps right after his inauguration. To theirs surprise it collapsed ahead of schedule. So, now they are hard at work to make sure it will colaps in the last year of his presidence as to assure H. R. Clinton will not succeed. J.Bush son of the higest ranked Mason in USA is already hard at work with his well funded and oiled organization to take over. Should that take place NWO will continue. So my projection is sometimes after September 2015 things are going to get hot. Economy will decline and by the time for election of 2016 voters will be more worry where the next meal will be coming from then how to find the place to cast the vote. Considering, that according to techniqual analysis bear market is overdue this is all very plausible. On the other hand, entire world economy is more or less stimulated (read controlled) so it is conceivable that the ongoing system can easily avert the calamity if it would be in their interest to do so. We the People are nothing more or less but the sand in the desert.